As the economy emerges from the COVID-19 crisis, many economists are projecting the possibility of significant GDP growth in late 2020 into early 2021. While the need for wholesale funding has decreased given increased cash levels, it may swing in the other direction during an economic recovery, especially for those depositories that have seen a significant surge in flight to quality deposits and/or PPP activity.
Also, in an economic recovery, the long end of the yield curve could rise as investors flee safer investments like long-term government bonds and seek out opportunities in riskier assets. Forward-starting advances offer the ability to benefit from the current low and flat yield curve while pushing the disbursement of funds to a period when the need for funding may be greater. On June 24, 2020, a two-year Classic Advance for disbursement 12 months forward was priced at 0.69%, just six basis points more than a two-year Classic Advance where the proceeds are received immediately.